MarketView for July 23

Summary

The S&P 500 ended a four-day winning streak on Tuesday and pulled back from Monday's record closing high, while healthy earnings from United Technologies gave the Dow a slight lift. Earnings, as a whole, though, were lukewarm and held back the broader market. Technology shares weighed on the S&P 500 and the Nasdaq. Shares of Apple fell 1.7 percent to end at $418.99, ahead of the company's earnings after the closing bell.

Apple's stock added 3.6 percent in extended-hours trading on news that sales of the tech bellwether's iPhone exceeded the Street’s estimates in the third quarter, with domestic shipments up 51 percent, even as profit fell. Initially, the stock was up 5 percent following the results.

Stronger-than-expected earnings from United Technologies drove the company's stock to an all-time intraday high of $105.63. The stock rose 3 percent to end at $105.12 and led the Dow industrials' advance after the company raised the low end of its 2013 earnings forecast.

Stocks traded in a narrow range throughout the session. S&P 500 index moved just 7.65 points between a record intraday high of 1,698.78 and a session low of 1,691.13. The Dow's swing covered 60.16 points from its record intraday high of 15,604.22, reached within minutes after the opening bell, and its session low of 15,544.06.

The S&P 500's decline on Tuesday was only the second down day for the benchmark index in the last 14. The S&P 500 has gained 18.7 percent so far this year. Biotech shares also pulled down the S&P 500 and the Nasdaq.

Travelers fell 3.8 percent to $82.21 after the company said it would cut jobs and reduce prices of automobile insurance - steps investors viewed as an indication that rates had risen too far and competition was increasing. The company, a Dow component and the first major insurer to report results, is seen as a bellwether for the industry.

Of the 130 companies in the S&P 500 that have reported earnings so far this season, 63.8 percent have beaten analysts' expectations, but 51.5 percent have fallen short of revenue forecasts. Over the past four quarters, 67 percent of companies have exceeded earnings estimates.

Netflix fell 4.5 percent to $250.26 a day after the movies and TV streaming service reported it had gained new subscribers in the second quarter. The number of new subscribers, though, was not enough to impress investors.

Elsewhere in the tech sector, Cisco said it will buy software maker Sourcefire for about $2.7 billion to increase its network security services. Sourcefire shares ended the day up 27.8 percent to $75.49. In comparison, Cisco's stock fell 0.6 percent to $25.56.

Shares of Phillips 66 Partners ended the day up 29.1 percent at $29.70 in their first day of trading. The initial public offering of 16.4 million shares was priced at $23 per share. The new publicly traded partnership has a contractual relationship with Phillips 66, whose shares rose 2.6 percent to $59.49.

Approximately 5.6 billion shares changed hands on the three major equity exchanges, a number that was below the daily average of about 6.4 billion shares.

Apple Surprises on Revenue

Sales of Apple’s iPhone exceeded Street estimates after domestic shipments increased 51 percent in the third quarter, lifting its stock 5 percent even as profit fell. According to Apple, fell 22 percent as gross margins slid below 37 percent from more than 42 percent in the year-ago quarter.

The iPhone's solid showing eased concerns that growing competition is hurting demand for Apple's top-selling product as the global smartphone market matures. Rival Samsung Electronics Co Ltd, which overtook Apple to become the world's largest smartphone maker in 2012, fueled those fears when it issued a disappointing earnings forecast earlier this month.

Apple's stock, which has fallen 20 percent since January, rose 5 percent to $437.94 in after-hours trade. It closed at $418.99 on the Nasdaq. However, the company sold 31.2 million iPhones last quarter - far more than the estimated 26 million - and 14.6 million iPads.

Chief Financial Officer Peter Oppenheimer said in an interview that iPhone sales rose 51 percent in the United States from a year earlier, and 66 percent in Japan. Nonetheless, the revenue from China - an increasingly crucial market for the Silicon Valley giant as it strives for growth fell 43 percent from the second quarter and 14 percent from the year-ago period.

"China is a huge opportunity for Apple," Chief Executive Tim Cook said on a conference call. "I don't get discouraged over a 90-day kind of cycle."

Apple earned $6.9 billion, or $7.47 a share, on revenue of $35.3 billion. That compared with a profit of $8.8 billion, or $9.32 a share, on revenue of about $35 billion in the year-ago quarter. Wall Street's average forecast was for revenue of $35.02 billion and earnings per share of $7.32, according to Thomson Reuters I/B/E/S. The company has $146.6 billion in cash and short term securities.

The greatest long-term concern about Apple is whether the company has lost its innovative edge after re-imagining at least three major consumer electronics markets, with iTunes and the iPod, the iPhone and then the iPad. Since launching the iPad mini last fall, the company has yet to update its major devices.

Cook told analysts to expect new products in coming months, with some "in new categories," but as usual he played his cards close to the vest.

"We are on track to have a very busy fall," CFO Oppenheimer said earlier during the call without going into details.

Apple forecast revenue of $34 billion to $37 billion this quarter, slightly below Wall Street's average projection of $37.04 billion. The company estimated a margin of 36 to 37 percent. Gross margins came in at 36.9 percent in the third quarter, sharply below 42.8 percent a year ago, as Apple sold a greater number of relatively inexpensive older model iPhones, along with the new iPhone 5.